Agencies that cheat their clients

There was a time when TV-buying was a competitive battleground where agency folk fought for their clients’ right to the best and cheapest airtime. Today it has become more of a spectator sport. Praise be that the main content players in the media market are driven to fiercely protect the brands they represent. It makes for an interesting world.

Freeview has been predicted to overtake Sky as the majority provider of digital TV for a few years, but recent events concerning carriage have added a new dynamic to the media playground. You couldn’t have written a more intriguing plot with two brilliantly contrasting brands – Sky and Virgin Media – squaring up next to the swings and whacking each other with their content conkers into total stalemate.

Before trying to arbitrate on the playground spat, let’s concede Freeview’s growth achievement. The brainchild of individuals at ITV, BBC and others, Freeview has stolen a march in the digital market with a truly well thought-through product proposition that has also been cleverly marketed. With a substantially smaller marketing budget than Sky, Freeview has demonstrated that even the biggest, best resourced and most driven brands can be vulnerable.

Then Virgin comes along, the people’s champion brand… and what was a nicely competitive duopoly now has a new player. The Virgin brand elevated what was a flagging cable company into a new league – let’s not forget NTL was facing Chapter 11 and was a zero credit outfit less than eight years ago. Sky doesn’t like opposition as a matter of stated culture, but the thought of Virgin joining the squabble has clearly put it on a state of high alert.

In January, Sky forced Virgin Media to accept a reduction of approximately 85% in the fees that it pays for Virgin Media channels such as Living, Bravo and Trouble – this was despite a significant increase in the popularity of these channels. A month later Sky attempted to double the fees Virgin Media was paying to carry Sky’s basic channels. These channels had lost about 20% of their viewers in the preceding three years. Understandably Virgin said no; Sky responded by switching off its channels in the circa 3 million Virgin Media homes. Mid-sentence the feed was cut from Sky News, and others, and viewers were left with a blank screen. No doubt more than one household across the land had thought Armageddon was upon them. An immediate Sky marketing offensive to win over Virgin Media customers with newspaper advertising made Lord Kitchener’s call to arms look wordy and subtle.

The squabble has made for great entertainment and Sky’s investment in ITV has added even more spice – who knows where it will all shake out? But the fall-out has underlined a major failing in the TV advertising market, which is affecting a number of advertisers. Agency deals cannot keep up with this pace of change.

In the first quarter, Sky audiences fell by over 2% but revenue increased by 2%; conversely Channel 4’s digital audience grew by 36% and its revenues were up by only 14%. These are just a couple of examples of how horrifically the supposed pure-play TV buying market does not work.

This has led to the continued suspicion that agency deals do not accommodate the way in which the supply of audiences is constantly shifting. The big buying points have publicly decried CRR (contract rights renewal) and highlighted the need to move to a different way of trading TV airtime, but the talk has not translated into action. It doesn’t really suit them. In fact this trail has gone cold since Aegis changed its stance and came out in favour of scrapping CRR. Relations between ITV and Aegis have been viewed as uncomfortably close for the past two years. It is interesting that the reason stated by Aegis for this stance is that CRR is contributing to the decline in the TV advertising market – so in fact the agency is arguing against cheaper TV airtime for its clients.

The Sky/Virgin spat may be unseemly, but these people must act as they see fit: they are beholden to their shareholders. However, the pickpockets of the agency world need to take care that they don’t degrade the faith their clients have shown in them. Maybe it’s time they took a look at the deals which have been struck against audiences that have moved on.

Colin Mills is a founding partner of the7stars